Serviceability to suffer from bushfires

by Madison Utley14 Jan 2020

The bushfires raging across Australia are likely to lead to elevated mortgage arrears in the coming months and, if weather-related “peril events” continue to become a more regular occurrence, they could reshape the standard arrear fluctuations expected throughout the year, according to a new report from S&P Global Ratings.

“Mortgage arrears typically increase during the summer period, reflecting the pre- and post-Christmas spending and extended holiday season, before declining during the second quarter,” the report reads. 

“If the longevity and intensity of bushfire seasons become a more regular occurrence, arrears could remain elevated for longer periods in drought-prone areas due to the flow-on effect of bushfire devastation on local employment conditions.”

Local employment conditions such as tourism and agriculture are expected to be impacted, causing debt-serviceability pressures for affected borrowers.

This dynamic will be further compounded in areas with drought conditions, or where agriculture forms a large part of local employment, with arrears predicted to remain elevated for an even longer period of time.

Lenders to borrowers in affected areas will likely experience an increase in financial hardship claims, which they are obliged to consider under consumer laws and banking codes. Possible concessions can include a reduction in the interest rate or payment, lengthening of loan maturity, or full or partial deferral of interest for a temporary period.

The mortgage and finance industry has banded together to help mitigate the financial stress for affected borrowers, raising over $355,000 to support those impacted by the unprecedented disaster of the last several months.

After launching a bushfire appeal via the Australian Red Cross, Jeremy Fisher of 1st Street Financial has joined with the industry associations to broaden the scope of the efforts, creating the ‘Mortgage and Finance Industry Bushfire Relief’.

“Since launching the relief appeal, I have been humbled by the generosity our industry has shown to support those in need and help rebuild fire devastated communities,” Fisher said.

“I am delighted to hand the baton over to our industry associations to further enhance the appeal’s reach and help more people through our combined efforts. After all, that’s what this is all about.”

Brokerages Aussie, Loan Market and Mortgage Choice have each donated $100,000 to the cause.

“It gives us great pleasure to be able to leverage the outstanding work Jeremy Fisher and others have already done,” said MFAA CEO Mike Felton.

“Our objective is to enhance the appeal to broaden the scope of prospective contributors with the aim of maximising the amount of financial support we are able to provide the Australian Red Cross in support of the communities that have been devastated by this dreadful ongoing bushfire crisis.

“We encourage the industry to get behind the cause.”

If you’re interested in contributing, you can donate here